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UK banks suffered another blow today over the PPI mis-selling scandal as the Financial Services Authority said it was not ready to put a deadline on when thousands of consumers must claim compensation.

The banks, through the British Bankers’ Association, have been lobbying hard for there to be a early cut-off point for claims so they can close their books on the scandal which has cost them more than £10 billion and could rise to double that amount.

The most recent suggestion from the BBA was that a cut-off should be set for May 2014. But the FSA said while it is happy to continue discussions with the BBA, the plans which it has seen were only “embryonic”. The regulator also said its absolute priority was to ensure consumers were fully protected.

This means that even if it could reach a deal with the banks it would have to go out for a full public consultation. That would take at least three months. By that time, the FSA will have been replaced by the Financial Conduct Authority, which could make the process longer.

It is also highly possible that any change to PPI claims could face legal challenges to the regulator and the banks. Current statutes of limitations are that claims must be made within six years of a product being sold or within three years of the buyer realising they had been mis-sold a product.

The FSA has also told the banks they will have to fund a massive advertising campaign to inform consumers if a deadline for PPI claims can be agreed.

The CBI has argued that the amount of resources the banks are having to devote to PPI has lessened the amounts that they are willing to lend to business.

The Bank of England’s Financial Policy Committee has expressed concerns that the compensation payouts are eating into banks’ capital when regulators are demanding they strengthen their balance sheets.